There are various financial aspects to consider when deciding whether to buy or rent a house. Renting a property can provide greater liquidity and flexibility than buying, especially for young professionals who want to gain more financial independence. So let’s look at both sides of the spectrum and how each eases into your financial aspirations and lifestyle.

1. Buying a House vs. Renting: Analyzing the Heather Cost to Determine Value

Buying a House

A major deciding factor when buying or residency is the price of both options. On the more expensive side of the spectrum, purchasing a metro region such as a 2–3-bedroom house in Delhi or Bangalore can be troublesome.

• Basic cost of the house: Rs. 50 lakhs
• Stamp duty: Rs. 3 lakh (6% of the house cost)
• Builder charges: Rs. 3 lakhs (includes maintenance, parking, etc.)
• Miscellaneous expenses: Rs. 1.5 lakh

By purchasing an under-construction home, the comprehensive price will rise due to GST (5%) amounting to Rs. 2.5 lakhs. Therefore, combined with new construction buying fee, the total will stand at an elevated Rs. 60 Lakhs. 80 Percent of the supplementary fee will rise immediately causing greater burden to overall price.

In case you take a home loan of 60 lakh, you would need to pay an EMI of 48,000 per month for the next 20 years. For the entirety of two decades, regardless of how much your income is, you’ll have to stay committed towards payment. The house will belong to you after the twenty years, but during that period you may face some financial strain.

Renting a House

On the other hand, if you decide to rent the same house, your monthly payment can be capped at 10,000 per month. By renting instead of taking a home loan, you end up saving 38,000 every month compared to the home loan EMI. The money saved can be directed towards investing into mutual or index funds.

For example, if you invest Rs. 38,000 per month for 20 years, you could stand to sore on surplus of Rs. 4 crores. This particular investment is highly liquid compare to the asset of a house which makes it harder to resell if you are in need of money.

2. Disadvantages of Buying a House

While it may feel good to have any accomplished lifestyle that you may have earned, with that being said, there are some very important caveats:

• EMI burden: A considerable problem while taking home loans comes the hefty monthly payment.
• Physical attachment: Having a house usually reflects some degree of emotional involvement which makes moving difficult.
• Difficult to sell: If you do not have a favorable market, it may take a while to sell your house.
• Liability: A house comes with various liabilities, particularly to the interest rates on loans, which in India is about 6-7% these days.

Buying a house is sensible only when you have a substantial extra corpus and intend to stay in one place. It is more practical to rent out and invest the spare cash instead of being burdened with an expensive asset for a lot of people.

3. Benefits of Renting a House

A tenant gets many benefits of renting, especially a need to have financial flexibility:

• Freedom of movement: With renting, moving for jobs and other personal purposes becomes easier.
• More investment opportunities: The amount saved can be invested in mutual funds which provide a higher return.
• Flexibility in decision-making: The decision about the job or further studies becomes flexible because a rented property does not come with the burden of a mortgage.
• Liquidity: Unlike a house which is a non-liquid asset, renting provides liquidity which can be useful in emergencies.
• No hassles with rent delays: With rentals, you are not responsible for maintenance and there are no taxes to manage, so you do not face delays with taxes and maintenance.

Renting seems to be the appropriate choice for individuals who cherish freedom, financial flexibility, and most importantly, liquid assets. You can rent and invest the surplus money which gives you the flexibility to reorganize any of your life changing objectives seamlessly.

4. The Evolving View: Why Nowadays Renting Could Be Preferable

In most cultures, particularly in the west, the idea of owning a house was regarded as attaining one of the greatest assets a person could possess, which was passed on to the next generation like a religious shrine. This notion, however, has changed entirely with the real estate dream. Nowadays, there is significantly higher demand for investments and supply of properties is also higher, hence deflation is quite common. Consequently, the price growth of homes does not keep up with their previously high rates.

Besides, at an emotional level, it seems more appealing to rent rather than buy. A significant portion of income does not need to be paid toward a home loan with a 7% interest rate, as opposed to paying rent, which, with generally lower or equal inflation, can be done at a 2-3% rate. As such, there are multiple reasons supporting a move away from purchasing.

5. Who Are the Target Buyers?

And so, for whom does it make sense to buy a house? People who:

• Have a lot of money tucked away in a savings account that is earmarked for investments.
• Are rooted in a specific area and do not wish to relocate anytime soon.
• Aim to achieve long-term investment returns while getting rid of the burden of paying rent.

Yet for someone just starting their career or one who moves frequently, leasing offers distinct advantages. Leasing allows more movement since the office is in one location and there is freedom to move elsewhere, as well as the ability to spread one’s money into more active and higher yield opportunities.

Conclusion

• Steer clear of purchasing a property if your situation demands a high level of access to cash or other investments.
• Consider buying a property, leasing it out, and using the proceeds to invest in portfolios that promise better returns.
• Emotional detachment from materialistic possessions is advantageous while renting.
• Liquidity is enhanced by renting and gives the tenant the ability to make decisions faster and with less risk.

Categories: Personal Finance Management